IV. Specific Issues Raised by the Forestry Workers Lien for Wages Act

IV. Specific Issues Raised by the Forestry Workers Lien for Wages Act2017-03-03T18:35:03+00:00

As a result of the shifting legal and commercial context for FWLWA, a lien regime is no longer an appropriate choice for regulating the logging industry. This chapter explores some of the more specific legal issues raised by the Act that would have to be addressed as part of any reform exercise.

 

A.   Determining Who is Entitled to a Lien

It appears that a key reason the current Act is not frequently used is a lack of clarity over its scope. The LCO heard in consultations that workers are sometimes told that the work they do does not fall within the Act. They do not bother filing a lien since most do not have the resources for a court application to determine whether or not they are protected.

There are some inherent difficulties in defining the scope of a forestry worker lien regime. Who should be protected? Loggers are part of a supply chain that results in finished wood products. Each member of the supply chain adds value to the eventual product. It is difficult to set boundaries on the protection to be provided by a lien regime without drawing an arbitrary distinction between loggers and other small businesses contributing to the harvesting process. The scope of a lien regime may also be defined in relation to the functions performed by loggers. In Buchanan, the Court took a liberal approach, holding that the Act should protect all functions involved in “the chain of production from cutting trees to delivering them to the mill”.[154] However, this does not resolve the problem of setting reasonable boundaries on this concept.

Precision in the scope of the Act must be balanced against the value of employing flexible language so as to encompass future logging functions arising from technological advances. In spite of the progressive interpretation adopted in Buchanan, the definitions in the current Act are essentially a close-ended list of specific activities and raw wood products with relatively little room for judicial interpretation.

Another definitional issue raised by the Act is its continued application to logging employees; both the few remaining logging employees directly employed by forest product companies and the employees of logging contractors and subcontractors. Direct employees of forest product companies are clearly covered by the current Act and the issue here, as noted above, is whether a lien remedy should continue to be available given the other statutory wage protections in place. This issue is more complicated in the case of indirect employees, that is, the employees of logging contractors and subcontractors. The language of the Act suggests that these indirect employees are also entitled to assert a lien against the owner of the wood independent of any lien filed by their employer. Should these employee claims be permitted or should these employees be required to look to their direct employer for their wages? Again, the nature of the logging industry makes it difficult to set appropriate boundaries to a forestry worker lien regime.


B.   The Subcontractor Problem

A key shortcoming of FWLWA is its failure to accommodate the modern practice of contracting out harvesting operations. Licencees typically hire “stump to dump” contractors who then subcontract out various logging functions such as harvesting, skidding or trucking. These subcontractors may, in turn, hire additional subcontractors to carry out more specialized tasks.

Both contractors and subcontractors contribute value to logs or timber as they move along the supply chain from forest to mill. There is no functional distinction between their economic positions that would justify giving contractors lien protection to the exclusion of subcontractors. Furthermore, unless subcontractors are protected alongside contractors, forest product companies may avoid liability by creating subsidiaries to carry out harvesting operations. This problem has been long recognized by the courts. In 1911, a New Brunswick judge found that a subcontractor was entitled to claim a woodworker lien on the following reasoning:

The act was intended as a protection to workmen who perform labour or services, and in none of its provisions does it differentiate between the case of a woodman working directly for the owner of the lumber, and that of a woodman one stop farther removed, working for a contractor with the owner. To put upon the act any other construction than the learned judge has, would be to defeat entirely the purpose it was intended to serve, i.e., the protection of the wage-earner. For no owner of logs or timber would be likely to voluntarily assume by a direct hiring, the obligation of responsibility for the woodmen’s wages, if by contracting with a third party to get out the logs or timber he could altogether avoid responsibility for those wages, and at the same time have his logs freed from the woodmen’s liens thereon.[155]

Although it seems clear that subcontractors should be included in a forestry worker lien regime, this complicates the regime since there may be several degrees of separation between the licencee and a particular subcontractor. The concern is for the forest product company who pays the general contractor but is, nonetheless, subject to a lien by a subcontractor as a result of the contractor defaulting on its own payments. It is unclear under the existing Act whether subcontractors are entitled to file a lien against an owner with whom they have no contractual relationship. The plain wording of the Act would appear to include subcontractors within its scope. However, an old Supreme Court of Canada decision held otherwise for the very reason that it would be unfair to the owner to expose it to lien claims after having paid the contract price.[156]

The best example of a lien regime operating in a highly fragmented industry is the Construction Lien Act.[157] Subcontractors are protected in the construction industry through an elaborate system of holdbacks. Essentially, the owner holds back 10 per cent of the amount payable to the contractor to cover any subcontractor liens. This holdback system extends throughout the contracting pyramid with subcontractors holding back 10 per cent from sub-subcontractors and so forth. A holdback system is effective in allowing for subcontractor lien claims while limiting the owner’s exposure. However, it is a complex system which requires industry buy-in. This would be difficult and costly to establish in a smaller industry with informal contracting practices such as the logging industry.


C.   Identifying the Property to Which the Lien Attaches

Currently a lien under the Act attaches to “logs or timber” which is defined as a list of products including telegraph poles, railroad ties, tan bark, pulpwood, shingle bolts and staves. This definition is clearly outdated. It includes obsolete products such as tan bark and omits new products such as biomass. As with the definition of “labour”, there is little scope for a court to interpret the definition in order to respond to technological change.[158]

Whatever definition is adopted, there is still the problem of ensuring that the property subject to the lien is identifiable to third parties with a potential interest in it. Commercial liens commonly arise in respect of particular articles like vehicles that are unique enough to be identifiable. This is particularly important in respect of non-possessory liens so that the article may be tracked down even after leaving the possession of the lien claimant. Logs or timber are not easily identifiable. Under the current Act, the lien attaches to the specific wood that the logger has worked on. However, logs are typically mingled with other wood making it difficult to differentiate between them. This problem is exacerbated now that wood is processed very quickly. There may be no clear point at which the wood becomes “not wood”. [159]

Closely associated with the problem of identification is the issue of what happens when the wood is processed or sold to a third party. Currently, the Act provides that the lien is enforceable against a third party buyer of wood.[160] As discussed above, this is contrary to modern commercial law norms which prioritize the free transfer of goods.[161] 

 

D.   Viability of a Registry System

A registry system providing for third party notice of security interests is a foundational element of the PPSA and has been adopted in most non-possessory commercial lien regimes as will be discussed below. It would be logical for a reformed forestry worker lien regime to make use of the existing PPSR. A particular benefit to the PPSR is that registrations and searches may both be done electronically. This would make it possible for loggers working in northern Ontario to register liens without travelling long distances to the closest Registry office.

There are two ways for a forestry worker lien regime to be integrated into the PPSR system. A parallel but distinct registration process could  be set up recognizing the unique nature of forestry worker liens. An example is the Repair and Storage Lien Act (RSLA) which was adopted in Ontario in 1989 at the same time that the PPSA was undergoing significant reform.[162] The government took the opportunity to create a dedicated registration process for RSLA claims, but one using the Registry. Alternatively, forestry worker lien claims could be registered by way of a financing statement just as are PPSA security interests. The PPSA specifically provides that the Registry may be used to register other forms of statutory  security interests.[163] Other statutory liens in Ontario such as those for recovery of family support enforcement orders are currently registered in this manner.[164] Given the information technology costs of adapting the PPSR to recognize claims filed under a new statute, as well as the relatively small number of forestry worker liens currently filed, this second option would be more appropriate in the logging context.

However, it is questionable whether a registry system would be successful in the context of the logging industry. A key concern would be to ensure the accuracy of financing statements, particularly in identifying the debtor. Under the PPSA, the definition of debtor includes both a person who “owes payment or other performance of the obligation secured” and a person who “owns or has rights in the collateral” depending on the context.[165] For the purpose of registering a forestry worker lien, the debtor would be the licencee even where the logger’s direct contractual relationship is with a contractor or subcontractor.[166] This ambiguity in the concept of debtor complicates the use of the PPSR in the logging context where loggers are often dealing with someone other than the owner of the wood and where the licencing regime obscures ownership.

Where a logger was able to correctly identify the “debtor” for the purpose of filing a financing statement, the next challenge would be to record the name accurately. Because the Registry is electronic, even small differences in the spelling of the debtor’s name or the use of abbreviations may lead to different search results. The PPSA Regulation provides detailed requirements on how the debtor name should appear in a financing statement.[167] In practice, small inaccuracies in debtor names are frequent enough to generate a steady stream of litigation and it is questionable whether it would be feasible for loggers to use the Registry successfully without the assistance of a lawyer.[168] This concern brings us full circle back to the access to justice concerns originally motivating this reform project.

It is noteworthy that a recent project by the Manitoba Law Reform Commission on the Stable Keepers Act recommended against expanding the scope of that Act beyond possessory liens to include non-possessory liens:

In the Commission’s view, a non-possessory lien, with its attendant requirements of a written acknowledgement of indebtedness and registration of the lien, is not practical in the context of the animal keeping industry in Manitoba.[169]

Although the Commission does not elaborate, it seems possible that, like the logging industry in Ontario, the Manitoba animal keeping industry operates on an informal basis that is inconsistent with the formalities of a secured transactions registry system. The LCO is concerned that a registry system in the Ontario logging industry would not be practically effective.


E.   Variation in the Value of Lien Claims

Another aspect of logging business practices that complicates a lien regime is the large variation in the value of receivables owing to particular contractors or subcontractors. In Buchanan, the forestry worker lien claims ranged from less than $20,000 to almost $1 million. This variability results from the industry practice of forest product companies paying contracts only after wood is received at the mill. Although the general contractor might be paid promptly, it may take appreciably longer for this payment to trickle down to sub-subcontractors and during this time they may continue to generate additional receivables.

This wide variation in the value of forestry worker lien claims has at least two consequences. First, it raises questions about the enforcement mechanism that is appropriate in the circumstances. A summary enforcement procedure might be appropriate for smaller claims but more procedural protections preferable for larger claims. Second, the variation creates uncertainty. Third party lenders are unable to assess their credit risk unless they have a reasonably accurate idea of their potential exposure.

 

F.    Evidentiary Basis for Lien Claims

The PPSR operates as notice of a potential security interest in property but is not intended to provide proof of that interest. Instead, a potential creditor searching the system and finding a registered security interest must confirm its validity with the debtor or registered creditor.[170] This system is suitable for the PPSA regime because a consensual security agreement serves as evidence of the security interest.

In a statutory lien regime, however, evidence of the validity of a lien claim may be more difficult to come by. Since statutory liens are created by operation of law, there may be no documentary evidence of the underlying transaction giving rise to a lien claim and it may be more difficult for a third party to determine the legitimacy of the claim. This evidentiary problem has been addressed in some statutory lien regimes by requiring that, in order to enforce a non-possessory lien, the lien claimant must obtain a signed acknowledgement of indebtedness from the debtor.[171] Lien claimants such as repairers or storers under the RSLA are typically in a position to demand this signed acknowledgement where they start out having possession of the liened article since they may require the acknowledgement as a condition of returning the article to its owner.[172]

In contrast, a signed acknowledgement of indebtedness may not be a feasible evidentiary requirement for a forestry worker lien regime.[173] The logging industry operates relatively informally on the basis of long-term relationships and, often, without written contracts. Furthermore, loggers typically do not have possession of the wood that they harvest and may not be in a position to require an acknowledgement of indebtedness from the licencee or contractor.


G.  Fairness in the Priority Scheme

The appropriate level of priority to be accorded to forestry worker liens is closely linked to the policy rationale underpinning FWLWA. In cases of insolvency, the priority accorded to a security interest by statute very often means the difference between recovery and non-recovery for the secured party. A reformed forestry workers lien regime would have little practical effect unless the lien is given sufficient priority to ensure that loggers recover at the end of the day.

Currently, liens under FWLWA have priority over all other claims except those asserted by the Crown and claims for tolls asserted by a “timber slide company” or “any owner of a slide or boom”.[174] There are reasons to question whether this super-priority should continue to exist. First, it is arguably excessive relative to the priority status of most other secured creditors who are subject to the first-in-time rule under the PPSA. Non-possessory repair and storage liens registered in the PPSR do generally have super-priority over PPSA security interests. However, even these liens have been compromised to some extent in order to facilitate integration into the PPSR system.[175]

A second reason for reconsidering the traditional super-priority position of forestry worker liens is to ensure the continued availability of credit in the industry. The LCO heard in consultations that financial institutions may be unwilling to lend to forest product companies if their security interests do not have priority over forestry worker liens. This is in contrast to repair and storage liens where the financial industry has apparently accepted the super-priority status of repairers and storers.

An alternative to super-priority for forestry worker liens would be to move towards substantial integration with the PPSA. Under the PPSA, consensual security interests are generally ranked according to the date they are perfected (either by possession or by registration in the PPSR).[176] However, where security agreements secure future advances, the future advances receive the same priority as the original security interest, thereby permitting them to leapfrog over security interests registered during the intervening time period. [177] Since bank financing is typically secured prior to forestry worker liens arising, loggers would be unlikely to recover in this scenario.

This review of the Act in the broader context of Ontario’s commercial law framework reveals a number of idiosyncrasies in the nature of a forestry worker lien regime that would complicate effective reform. In the next chapter we explore how other statutory commercial lien regimes have addressed similar issues and consider to what extent these regimes might serve as models for reforming the Act.

 

 

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